Earnings season is in full swing, and investors are busy parsing the reports to pinpoint compelling investments. So far, with about half of the earnings reports in, net earnings are down between 15% and 16% year-over-year. Sales growth figures are some half-percent worse than had been expected. It’s difficult to compare actual results to company guidance figures, as a large number of companies had rescinded guidance before earnings season began. But one thing for sure: these results indicate the worst drop in corporate profits since 2009.
But there may be some bright spots. Michael Graham, 5-star analyst with Canaccord, has released an earnings preview note, and points out two ride-hailing giants that may have some positive news to report. We ran the two through TipRanks’ database to get the analyst community’s take on them. It turns out that each of the stocks has earned the Street’s approval with “Strong Buy” consensus ratings, which are based on all of the calls issued in the last three months. It also doesn’t hurt that each one has over 50% upside potential. Let’s take a closer look.
Uber Technologies, Inc. (UBER)
Uber is scheduled to report earnings tomorrow, and consensus estimates are now seeing a drop to 89-cent per share loss for the leader in the rideshare app niche. That would mark a 39% deeper loss sequentially from Q4, when Uber reported a 64-cent per share loss.
Like other companies in the ride share niche, Uber has worked to diversify its offerings. Peer-to-peer ridesharing, scooters, and electric bikes have all been offered in various ways and locations – but the most relevant Uber diversification story for the ‘Age of Corona’ is Uber Eats, a food delivery service. With so many people locked down at home, food delivery is a service in high demand. Uber Eats operates as a subsidiary company of Uber, and has seen a spike in customer sign-ups during the COVID-19 pandemic, on the order of 30%.
Graham points to the shelter-in-place orders as the biggest factor impacting Uber’s performance right now. He notes the predictable results: Rides bookings are down, showing only 2.6% yoy growth, a far cry from Uber’s initial gangbusters entry into the market, while Eats is showing quarterly growth on the order of 40% year-over-year. People must eat, and any company positioned to cater to that need will find a path forward.
Summing up, Graham says, “Uber has provided several updates on the impact of COVID-19 on its business since the pandemic began. In mid-March, the company confirmed that COVID-19 had significantly impacted the rides business, that markets impacted early on have also recovered quickly, and that Eats was performing solidly in the current environment. Uber also provided a liquidity update, reminding investors of the strength of its balance sheet and the highly variable nature of its cost structure.”
Graham rates UBER stock a Buy, with a $48 price target pointing toward a robust 77% share appreciation this year.
Overall, Uber shares hold a Strong Buy rating from the analyst consensus, with no fewer than 29 recent reviewers chiming in. The breakdown is 26 Buy ratings, with only 2 Holds and 1 Sell. The stock’s current trading price is $27.15, while the $41.64 average price target suggests it has room for a 53% upside potential. (See Uber stock analysis on TipRanks)
Lyft, Inc. (LYFT)
The on-demand online rideshare company Lyft controls a 28% market share in its niche, offering customers car rides, scooter rentals, and bicycle sharing primarily in urban markets through the US and Canada. Rideshare apps were growing in popularity before COVID-19 hit, and Lyft’s 2019 revenue of $3.62 billion was up 67% from the year before. Fast growing revenues, however, could not cover the fact that the company operates a net loss.
Earnings were still growing at the end of 2019, even as the coronavirus started to make the news. The company reported a record-setting top line of $1.02 billion in Q4, for 52% yoy growth. The quarterly net loss, however, was $356 million – or 43% worse than the year before. Looking ahead to earnings this evening, LYFT is expected to report a net loss of $1.09 per share in Q1.
In share price performance, the Q1 bear market hit LYFT hard. The stock fell 70% before bottoming out at just $16 per share, and has regained only a fraction of that loss.
Canaccord’s Graham, however, sees the current low share price as an opportunity to buy in. He says that investors will be looking for several data points in the earnings release, including “an updated timeline for profitability… and any potential leading indicators of a recovery…”
Graham adds, “Looking ahead, several US cities and states are planning a tiered reopening of their economies, and as people slowly return to work and other normal everyday activities, Lyft should see an uptick in demand.”
In line with this bullish outlook, Graham puts a $50 price target on LYFT shares, suggesting a powerful upside of 95%. (To watch Graham’s track record, click here)
Wall Street agrees that LYFT shares should hold a prominent place on investors’ radar. The stock has 23 Buy ratings, versus 6 Holds, for a Strong Buy from the analyst consensus. As noted, shares are selling at a deep discount, just $25.52, but the average price target of $50.17 implies a high upside potential of 977% for the coming 12 months. (See Lyft stock analysis on TipRanks)
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